Marketing Benchmark’99

Mar 01, 1999 10:30 PM  By

Catalogers must have taken the phrase “if it ain’t broken, don’t fix it” to heart. Although the Internet has persuaded some catalogers to alter their strategies, traditional marketing techniques-such as renting lists and offering buyer incentives-are still working. n Among participants in the 1999 Catalog Age Benchmark Report on Marketing, response rates and conversion rates are up. For instance, 15% of survey respondents report that more than 25% of leads who paid for the catalog converted into buyers, compared to only 6% in 1998′s report and 9% in 1997′s study. Response rates are also on the rise, with 17% of participants generating response rates of 10%-15% from housefiles, compared to 6% of participants last year. n It’s likely that the improved response rates stem from catalogers spending more money to learn more about customers and markets. Fifteen percent of survey respondents spend $10,000-$25,000 a year on market research, compared to 9% the year before; 17% of this year’s participants report spending more than $50,000, vs. 11% in 1997.

Indeed, direct marketing consultants and professors often preach that market research is essential to success. So it’s not surprising that 97% of “hybrid” catalogers (those that market to both consumers and businesses) conduct research, as do 93% of consumer mailers and 86% of business-to-business catalogers. In fact, market research is on the rise, from 86% of overall respondents in last year’s report to 93% in this year’s. And more catalogers are bringing research functions inhouse-86% of the survey participants this year vs. 76% last year.

Research methodology is one of the areas in which the Internet has changed catalogers’ strategies. The number of respondents using direct mail to conduct research dropped 10 percentage points, from 69% last year to 59% this year, most likely because of the benefits of e-mail and Website surveys. “Not only are Website surveys inexpensive, but they also provide instantaneous feedback,” says Jeff Parnell, CEO of gift catalog Eximious of London, based in Northfield, IL. “Consumers feel empowered [online] and are more willing to share thoughts-both positive and negative.” This year, for the first time, we asked respondents about Web research. Slightly more than a quarter (26%) of participants have conducted Internet-based surveys.

And just what do catalogers hope to gain from market research? Among the respondents to this year’s survey, 85% consider market research “very important” in determining overall customer satisfaction; 76% of respondents say it is “very important” in rating customer service. Survey respondents also consider market research “very important” in measuring where they stand against the competition (62%), and in determining the viability of current catalog concepts (64%).

The use of research to test the viability of electronic catalog concepts increased significantly; while 28% of last year’s participants considered it “very important,” 41% of this year’s participants do. Ascertaining demographic data (39%) and garnering psychographic information (28%) continue to be considered “very important” functions of market research.

CUSTOMER ACQUISITION In addition to renting lists, catalogers still rely on alternative media to identify new customers. This year, 77% of respondents-85% of consumer catalogers, 77% of hybrids, and 61% of b-to-bers-use at least one form of alternative media, such as package inserts, Websites, and magazine ads.

Websites dominate this year’s list of alternative media, with 59% of all participants rating it a “good” or “very good” way to attract new customers, compared to 45% last year. Nearly two-thirds of business-to-business survey respondents (61%) use their Websites as a source for new names, as do 60% of consumer respondents and 58% of hybrids. “The Internet is nowhere near saturation in terms of prospects,” Parnell says. “And the more vertical your offer, the better chance of getting a qualified prospect.”

Meanwhile, use of magazine space ads as a prospecting tool (last year’s top alternative media choice) dropped 22 percentage points, to 39%. The use of package inserts (33%) and online services such as AOL (19%) as acquisition vehicles rose 8 and 4 percentage points, respectively. “Any astute marketer looking at results will see that costly media ads aren’t producing enough return, while the economics of the Web are intriguing,” says Ernie Edelstein, president of Escondido, CA-based consultancy The Marketing Arm. “The Web is attracting younger, more progressive consumers. And magazine readership may be down as more readers go online.”

Although 65% of respondents send the same version of their catalog to prospects and customers alike, 35% mail some or all prospects a different version. Of those with special versions, 70% change the cover, 55% change the merchandise mix, and 45% offer special pricing.

As for enticing prospects to buy from the catalog, 37% of respondents confess they do “nothing special.” The remainder offer free shipping and handling (31%), discount coupons for first purchases (30%), and free gifts with first purchases (23%). Free S&H is the most popular prospect incentive among consumer respondents, with 37% offering it. Among b-to-bers, 36% offer discounts on first purchases, making that the most popular prospect incentive for that group. The most popular prospect incentive among hybrids is a free gift with a first purchase; 35% offer it.

More than half (54%) of all respondents-77% of b-to-bers, 54% of consumers, and 33% of hybrids-fulfill catalog requests daily. One-quarter of overall respondents mail catalogs to requesters weekly, while 14% fulfill catalog requests every other week. What’s more, 65% of respondents-82% of b-to-bers, 78% of hybrids, and 53% of consumer catalogers-send the requested catalogs first class. Forty-one percent, including 57% of consumer mailers, send requests via the cheaper standard A mail (formerly third class). This year’s survey participants send a mean 4.4 catalogs to prospects before they give up trying to convert them into buyers.

As expected, b-to-bers, who typically boast higher average orders than consumer and hybrid catalogers, spend more on acquiring customers. In fact, the mean amount b-to-b respondents spend to acquire a customer is $80.40. By contrast, hybrids spend a mean of $59.40, and consumers a mean of $43.90.

But 25% of all survey respondents don’t even calculate the cost of acquiring customers, up from 17% last year. “It’s really a resource allocation issue. Plus by the time you calculate the cost, you’re already on to the next season,” says Gina Valentino, marketing manager for Chicago-based Barrie Pace, an upscale women’s apparel catalog. “As long as a company isn’t struggling or doesn’t need to cut back expenses, calculating the cost to acquire a new customer may not be necessary.” But many industry experts-including The Marketing Arm’s Edelstein-strongly disagree. “You never know when your business may run into financial trouble,” he says. “So calculating the cost to acquire a customer should be a top priority, even if it takes more time.”

CUSTOMER RETENTION Retaining customers is just as important as prospecting-if not more so. Volume discounts, free shipping and handling (S&H), and gifts or premiums with purchases are the most popular customer retention methods among respondents this year. Half of the total respondents offer volume discounts, including 82% of b-to-bers, up from 68% last year. On the flip side, 50% of hybrids give volume discounts, down from 73% last year.

While Anatomical Chart Co., an educational science supplies catalog, does not offer volume discounts to its customers, it may consider the idea in the future, according to president Marshall Cordell. But because the $12 million Skokie, IL-based cataloger bids for orders among schools, doctors, and hospitals, “we don’t have to offer discounts. Instead we have to look at each product order on an individual basis and see where the pricing falls,” he says. Plus, because many of Anatomical’s products are proprietary, “discounts would defeat the purpose of the bidding process.”

While 36% of consumer respondents offer volume discounts, 50% of all consumer participants offer free S&H as an incentive, as do 53% of hybrids and 43% of b-to-bers. Only 15% of the consumer catalog respondents that tried free S&H found that it failed to retain customers, compared to 24% last year.

Among all respondents, the regular use of gifts or premiums as a customer retention tool jumped 8 percentage points, to 43%. Consumer mailers are much less enamored of the incentive than their b-to-b and hybrid counterparts: Only 36% of consumer respondents offer gifts with purchase, compared to 71% of the b-to-b and hybrid respondents.

Of the 30% of respondents that promote frequent-buyer or preferred-buyer loyalty programs, 55% offer special discounted products, 53% lower product prices for program members, and 43% mail newsletters or other information to program participants.

Nearly a third (32%) of respondents regularly use dollar-off coupons as an incentive. But Barrie Pace, which tested discount offers via bind-in cards last fall, is wary about continuing this kind of incentive. “The goal in our offering discounts is to get a first-time buyer to buy again,” Valentino says. “But if I give a discount, will the customer become a discount buyer, or can I convert her to a full-priced buyer?”

While the majority of b-to-bers (69%) send out sale books to their best customers as a retention tool, the largest group of consumer mailers (56%) and hybrids (54%) prefer special targeted catalogs. That’s a shift from last year’s top choices, when the plurality of b-to-bers (48%) preferred solo mailings, most consumer mailers (62%) favored sale catalogs, and most hybrids (58%) opted for targeted catalogs.

ANALYSIS Last year, only 47% of respondents conducted lifetime value (LTV) studies on customers, despite the wide availability of sophisticated database technologies. This year, the numbers are even more discouraging, with only 37% of respondents conducting such studies. The main reason? Of those that don’t calculate LTV, 39%-including 74% of hybrids, 36% of b-to-bers, and 27% of consumer respondents-say they don’t know how. “Brokers and service bureaus need to be more aggressive in helping catalogers understand lifetime value,” Valentino says. “They have access to valuable reports, such as response history, that could serve our industry tremendously.”

LTV studies are most popular among b-to-b mailers-44% calculate LTV, compared with 35% of consumers and hybrids. Another 32% of the total respondents are considering conducting LTV studies in the future. While neither Barrie Pace nor Eximious of London calculates customer LTV, both companies say that they plan to do so in 1999. LTV studies are “very time-consuming and often overwhelming,” Valentino says. Such programs also require the constant attention of marketers. “If the program is not set up right and there’s no one to monitor it, it can fall by the wayside,” she says.

While the plurality (26%) of overall respondents draw an average response rate of 5.1%-10% from the top fifth of the housefile, 19% say they enjoy a response rate of more than 20%. The mean response rate from the top fifth of respondents’ housefiles was nearly 12%, compared to about 10% last year. B-to-bers had a mean response rate from the top fifth of their housefile of 17%; consumer respondents’ mean response was 11%; and the mean response rate among the hybrids was 10%.

As for response rates from the total housefile, the plurality of respondents (28%) get an average of 3.1%-5%; 36% of consumer mailers, 22% of b-to-bers, and 21% of hybrids also fall into this category. The mean total housefile response rate among b-to-b participants was 9%, compared to 7% among consumer and hybrid respondents.

When it comes to outside list performance, the plurality of respondents (28%) draw a 0.5%-1% average response rate; this includes 57% of b-to-bers, 20% of consumers, and 18% of hybrids. Last year’s 2% overall mean response rate from outside lists holds true this year too.

Nearly 15% of participants-20% of hybrid mailers, 16% of consumer catalogers, and 8% of b-to-bers-say their housefile accounts for 60% of company sales. The mean percentage of sales from housefiles was 67%, with business mailers reaping 77% of total sales from their housefile, compared to 64% for consumer and hybrid respondents. And although the plurality of participants (37%) say that their Websites have yet to contribute to their bottom line, 37% claim that online orders account for at least 5% of total sales.

INTERNATIONAL Forty-six percent of the total respondents have an active international program or are testing one, while another 23% are considering implementing an international sales program. B-to-b respondents are the most active overseas, with 68% selling internationally, compared to 25% of consumer respondents and 20% of hybrids. Nearly a fifth (18%) of survey participants are not interested in overseas marketing, mainly because of a lack of staff (55%) and the belief that it costs too much (30%).

Of those that do mail overseas, 79% offer different products in the foreign catalog than in their U.S. counterpart, and 69% produce foreign-language books.

Mailing into South and Central America has gained momentum, especially among business-to-business catalogers. Of those survey respondents that have international programs, 39% of b-to-bers, 16% of consumer catalogers, and 16% of hybrids mail into these countries, compared to 26% of b-to-bers, 6% of consumer books, and 7% of hybrids last year. “For our business, the educational market in South America, especially Brazil, is very attractive,” says Anatomical Chart’s Cordell. “These countries are spending much more money on educational products.” In fact, Anatomical is translating many of its charts into Portuguese to boost orders.

METHODOLOGY In October 1998, the Catalog Age subscriber file was sorted on an nth-name basis to extract a representative sample of 1,000 catalog presidents and owners. These subscribers received a letter of explanation, a 91-question survey, and a postage-paid envelope in which to return the survey to an independent marketing/research firm. Of the 978 deliverable questionnaires, 133 were completed and returned, resulting in a response rate of approximately 14%.